Brazil - now the hard part

A divided country demands compromise

by David Smith

Thu 30 Oct 2014

Brazilians used to describe their country as Belindia, half Belgium half India. This election showed each half voting with their wallets: The poorest 51% voted to return Dilma Rousseff to the presidency for the next four years, while nearly 49% living in economic powerhouse regions voted for Aécio Neves.

Dilma, as she is known, won with her brand of the big, interventionist state regulating everything from banks to energy to vast welfare programmes, in the name of the Workers Party that has ruled Brazil for 12 years.

The victory was surprisingly narrow over centre-right opponent Senator Neves, whose campaign raised the corruption scandals that have already sent members of the ruling party to jail. Brazil has a serious opposition in place, with the industrial economic heartland of the country firmly behind better administration and a pro-business government.

Politically, Dilma won in the poor rural north and northeast of the country with a message focused on the huge anti-poverty programmes that have put cash in the hands of the neediest and lifted tens of millions out of poverty. In the final days of a bitter campaign, her party worked overtime to tell its natural constituency that Neves would dismantle the welfare plans that guaranteed their family income, the Bolsa Família. No matter that Neves had promised not to do so. The scare strategy proved the key to survival, according to the exit polls.

Yet Neves and his Social Democratic Party swept the regions which represent the economic future of the country. With landslide numbers in São Paulo province and southern and central-western Brazil, Neves speaks for the people who generate more than 80% of GDP, produce 85% of exports and pay 90% of taxes.

And there’s the rub for the president, as she contemplates the economic path for a country that has entered recession, with 0.3% growth, inflation nearing 7% and an investment grade just above junk status.

‘This president is open to dialogue, and that is the first promise I make as I start my second term: Dialogue,' Dilma said as the results confirmed her victory. ‘Sometimes close victories produce bigger and better changes than landslide votes.’ But she is not known for dialogue, or compromise. They have never been her style.

Chances are that she will have very little time or wiggle-room as the economics of the situation outweigh the political calculus. The day after the election, the Bovespa index on the São Paulo bourse plummeted, down almost 7% at one point to a nine-year low. The real devalued sharply and the state oil and energy giants lost market value dramatically. The markets stopped short of a collapse, and rebounded somewhat in the days following, but the message was writ large: Brazil faces market meltdown unless the government thinks again.

The response of the president was to insist that her unpopular economics minister Guido Mantega will go. The replacements she floated all suggest compromise with the opposition and an appeal to a burgeoning middle class that wants growth, jobs and smaller government.

According to Neves, ‘The president’s campaign was so negative that we cannot trust her words, only her actions.’

And in action lies the hope coming out of this election. A 51-49 vote speaks of a country at the crossroads in terms of its economics, its development and progress. A divided country demands compromise, not more of the same.

Dilma's mentor, former President Lula, was visibly at her side towards the end of this campaign, and is not ruling out a return to office in 2018. Lula wrote the playbook on how to be the workers' president, while keeping Wall Street and the World Bank onside as well. His counsel will be critical if Dilma’s Brazil is to move now from the dogma of central planning and de facto one-party-rule to the pragmatism of open markets, free trade and a new political environment where the opposition has a strong voice and wields a serious stick.